[Federal Register Volume 63, Number 129 (Tuesday, July 7, 1998)]
[Rules and Regulations]
[Pages 36560-36571]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17633]


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SOCIAL SECURITY ADMINISTRATION

20 CFR Parts 404 and 416

RIN 0960-AE53


Administrative Review Process; Identification and Referral of 
Cases for Quality Review Under the Appeals Council's Authority To 
Review Cases on Its Own Motion

AGENCY: Social Security Administration (SSA).

ACTION: Final rule.

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SUMMARY: We are amending our regulations to include rules under which a 
decision or order of dismissal that is issued after the filing of a 
request for a hearing by an administrative law judge (ALJ) may be 
referred to the Appeals Council for possible review under the Appeals 
Council's existing authority to review cases on its own motion. These 
final rules codify identification and referral procedures that we 
currently use to ensure the accuracy of decisions that ALJs and other 
adjudicators make at the ALJ-hearing step (hearing level) of the 
administrative review process. The rules also codify new quality 
assurance procedures to ensure the quality of dispositions at the 
hearing level.

DATES: This rule is effective August 6, 1998.

FOR FURTHER INFORMATION CONTACT: Harry J. Short, Legal Assistant, 
Office of Process and Innovation Management, Social Security 
Administration, 6401 Security Boulevard, Baltimore, MD 21235, (410) 
965-6243 for information about this notice. For information on 
eligibility or claiming benefits, call our national toll-free number, 
1-800-772-1213.

SUPPLEMENTARY INFORMATION:

Background

    Under procedures set forth in Secs. 404.967 ff. and 416.1467 ff., 
and pursuant to a direct delegation of authority from the Commissioner 
of Social Security, the Appeals Council, a component in our Office of 
Hearings and Appeals (OHA), reviews hearing decisions and orders of 
dismissal issued by ALJs and decisions issued by certain other 
adjudicators. The Appeals Council may review an ALJ's decision or 
dismissal of a hearing request at the request of a party to the action 
or, pursuant to Secs. 404.969 and 416.1469, on its own motion. Through 
the exercise of its authority to review cases, the Appeals Council is 
responsible for ensuring that the final decisions of the Commissioner 
of Social Security in claims arising under titles II and XVI of the 
Social Security Act (the Act), as amended, are proper and in accordance 
with the law, regulations, and rulings.
    The Appeals Council's authority to review cases on its own motion 
also applies, at present, to two types of hearing-level cases that do 
not result in decisions by ALJs. Under Secs. 404.942 and 416.1442, 
attorney advisors in OHA are authorized until July 1, 1998, to conduct 
certain prehearing proceedings and to issue, where warranted by the 
documentary evidence, wholly favorable decisions. Under the provisions 
of Secs. 404.942 (e)(2) and (f)(3) and 416.1442 (e)(2) and (f)(3), such 
decisions are subject to review under the own-motion authority of the 
Appeals Council established in Secs. 404.969 and 416.1469. In addition, 
under Secs. 404.943 and 416.1443, adjudication officers are authorized, 
for test purposes, to conduct certain prehearing proceedings and to 
issue, where warranted by the documentary evidence, wholly favorable 
decisions. Under the provisions of Secs. 404.943(c)(2)(ii) and 
416.1443(c)(2)(ii), such decisions are also subject to review on the 
Appeals Council's own motion.
    Under our regulations on the Appeals Council's procedures, if the 
Appeals Council decides to review a case in response to a request for 
review or on its own motion, it may issue a decision or remand the case 
to an ALJ. The Appeals Council may also dismiss a request for hearing 
for any reason that the ALJ could have dismissed the request.
    A decision by the Appeals Council ``to review'' a hearing-level 
decision means that the Appeals Council assumes jurisdiction and causes 
that decision not to be the final decision of the Commissioner of 
Social Security. A decision that the Appeals Council ``reviews'' will 
be replaced by a new final decision or dismissal order of the Appeals 
Council or, if a hearing or other hearing-level proceedings are 
required, by a decision or dismissal order issued following remand of 
the case from the Council to an ALJ.
    A decision by the Appeals Council to review a case is made when, 
following a consideration of the case to determine if review is 
appropriate, the Council issues a notice of its decision to review. The 
Council's standard notice of review

[[Page 36561]]

advises the parties of the reasons for the review and (unless the 
Council issues a wholly favorable decision upon taking review) the 
issues to be considered in proceedings before the Council or before an 
ALJ on remand. In instances in which the Council reviews a hearing 
level decision that has been issued based on the documentary evidence 
without the holding of an oral hearing by an ALJ, the parties have the 
right to such a hearing, except where the parties waive that right in 
writing.
    The existing provisions in Secs. 404.969 and 416.1469 on the 
Appeals Council's authority to review cases on its own motion provide 
that the Appeals Council itself may decide to review a case within 60 
days after the date of the hearing decision or dismissal and that, if 
the Council does review a case under this authority, it will provide 
notice to the parties to the hearing decision or dismissal action. 
Sections 404.969 and 416.1469 do not currently address the procedures 
used in identifying and referring cases to the Appeals Council for it 
to consider for possible review on its own motion.
    The Appeals Council may review any case on its own motion pursuant 
to Secs. 404.969 and 416.1469. The conditions under which the Appeals 
Council will review a case, on request for review or on its own motion, 
are set forth in Secs. 404.970 and 416.1470. Those sections provide 
that the Council will review a case if: (1) There appears to be an 
abuse of discretion by the ALJ; (2) there is an error of law; (3) the 
action, findings or conclusions of the ALJ are not supported by 
substantial evidence; or (4) there is a broad policy or procedural 
issue that may affect the general public interest. Sections 404.970 and 
416.1470 further provide that the Council will also review a case if 
new and material evidence is submitted that relates to the period on or 
before the date of the ALJ's decision and the Council finds, upon 
evaluating the evidence of record and the additional evidence, that an 
action, a finding or a conclusion of the ALJ is contrary to the weight 
of the evidence currently of record as a whole.
    In fiscal year 1996 (FY '96), the Appeals Council received 99,735 
requests for review. In FY '97, the number of requests for review 
received by the Appeals Council rose to 112,528. Most of these requests 
were for review of unfavorable decisions and dismissal actions; some 
concerned partially favorable decisions; and a few concerned decisions 
that were wholly favorable regarding the benefits claimed, but were 
found by a party to the decision to be less than fully satisfactory for 
some other reason.
    In FY '96, the Appeals Council considered 8,502 cases for possible 
review under its own-motion authority; in FY '97, the Council 
considered 8,012 cases for possible review under that authority. Almost 
all of these cases involved favorable hearing-level decisions that were 
referred to the Appeals Council under one of two types of 
identification and referral procedures we currently use--random sample 
procedures, which generated the majority of this workload, and 
``protest'' procedures.

Existing Identification and Referral Procedures

    The Appeals Council considers, for possible review on its own 
motion, a national random sample of favorable ALJ decisions that have 
not been implemented, and, as resources permit, a random sample of 
unappealed denial decisions and dismissals. We conduct these random 
sample procedures pursuant to sections 205(a), 702(a)(4) and 1631(d) of 
the Act, which give the Commissioner of Social Security general 
responsibility and authority for program administration and oversight.
    The Appeals Council also considers, for possible review on its own 
motion, a random sample of wholly favorable decisions issued by 
attorney advisors under the provisions of Secs. 404.942 and 416.1442. 
Wholly favorable decisions issued by adjudication officers under the 
provisions of Secs. 404.943 and 416.1443 are also identified by random 
sampling for referral to the Appeals Council for possible own-motion 
review. These procedures have been established in accordance with 
commitments we made, in publishing the final rules for the attorney 
advisor and adjudication officer provisions, to assess carefully the 
quality of the decisions issued by the attorney advisors and the 
adjudication officers (see 60 FR 34126, 34127 (1995) and 60 FR 47469, 
47471 (1995), respectively).
    Our existing identification and referral procedures also include 
those under which the SSA components responsible for effectuating 
hearing-level decisions--SSA Processing Centers (PCs) and Field Offices 
(FOs)--refer (``protest'') certain cases to the Appeals Council for 
possible review under its own motion authority. The PCs, which include 
our Program Service Centers and the Office of Disability and 
International Operations, refer cases directly to the Appeals Council; 
FOs forward cases to a PC or an SSA Regional Office, which decides if 
the PC or the Regional Commissioner should make a referral to the 
Council.
    Decisions by ALJs, attorney advisors and adjudication officers are 
all subject to referral to the Appeals Council under our protest 
procedures. Almost all protested decisions are favorable decisions 
because almost all of the ALJ decisions that require implementation are 
wholly or partially favorable decisions under which benefit payments 
are to be effectuated (initiated or continued), and because all 
decisions issued by attorney advisors and adjudication officers are 
wholly favorable. In protesting a decision, an effectuating component 
may recommend that the decision be made more or less favorable or 
unfavorable. The Appeals Council, however, will decide whether to 
review such a case, and the appropriate disposition if it decides to 
review a case, based on its consideration of the record and the 
hearing-level decision.
    Effectuating components refer a case if they believe the need for 
referral is clear (not dependent on a judgment factor) because: (1) the 
decision contains a clerical error which affects the outcome of the 
claim; (2) the decision is contrary to the Act, regulations or rulings; 
or (3) the decision cannot be effectuated because its intent is unclear 
as to an issue affecting the claim's outcome.
    Effectuating components refer cases to the Appeals Council by 
written memoranda. If the Council decides to review a referred case, it 
provides the parties a copy of the effectuating component's referral 
memorandum with the notice by which it advises the parties that it will 
review the case.
    We are amending our regulations to include rules on the existing 
random sample and protest procedures discussed above. We have decided 
to codify these procedures in connection with the decision we made, in 
furtherance of the Plan for a New Disability Claim Process (59 FR 47887 
(1994) (henceforth, the Disability Redesign Plan)), to strengthen the 
Appeals Council's own-motion functions by establishing a new process 
for identifying and referring cases for possible review under the 
Council's existing own-motion authority.

New Identification and Referral Procedures

    The Appeals Council currently considers only a small percentage of 
all favorable decisions issued at the hearing level for possible review 
under its own-motion authority. (The Council's workload in this area 
represented fewer than 3 percent of such decisions in FY

[[Page 36562]]

'96 and FY '97.) In addition, the processes currently used to select 
decisions for possible review on the Appeals Council's own motion are 
generally not designed to identify, in any systematic way, hearing-
level decisions that are more likely to be incorrect. The random sample 
processes bringing cases before the Appeals Council do not identify 
cases other than by techniques designed to assure randomness of 
selection within broadly identified categories (i.e., allowances, 
unappealed denials, and dismissals). The identification of ``protest'' 
cases that occurs in the effectuation process is a secondary function 
of a process that is principally focused on the prompt payment of 
benefits.
    Based on the above considerations, we are establishing procedures 
under which our Office of Quality Assurance and Performance Assessment 
(OQA), the SSA component that oversees SSA's quality assurance 
function, will examine certain allowance decisions at the hearing level 
that have been selected through statistical sampling techniques. OQA 
will refer to the Appeals Council for possible review the decisions it 
believes meet the criteria for review by the Council. Decisions that 
have been issued at the hearing level will initially be included in 
this examination process by random sampling. As we develop the computer 
systems and other technical capacities needed to support this function, 
we will use selective sampling techniques that rely on case profiling 
and other sampling methods that can identify cases which involve 
problematic issues or fact patterns that increase the likelihood of 
error.
    Under the new process, upon referral of a case by OQA, the Appeals 
Council will consider the case and OQA's reasons for believing that the 
decision should be reviewed. The Appeals Council will decide whether to 
review the case in accordance with Secs. 404.969-404.970 and/or 
416.1469-416.1470. If it decides to review the case, the Appeals 
Council will provide the parties a copy of OQA's referral, which will 
be in writing, with its notice of review. The 60-day time limit for the 
Appeals Council to initiate review of a case under the authority and 
standards provided in Secs. 404.969-404.970 and 416.1469-416.1470 will 
apply to cases the Council considers for review in response to 
referrals from OQA.
    The Act does not specify how SSA should review hearing-level 
decisions. We believe that the new procedures we are establishing, in 
combination with the existing identification and referral procedures 
that we are including in our regulations, are appropriate procedures 
for carrying out the program oversight responsibilities of the 
Commissioner of Social Security.
    An important purpose of the new procedures is to increase our 
ability to identify policy issues that should be clarified through 
publication of regulations or rulings. We plan to monitor how our 
policies are understood and implemented through a post-adjudicative 
evaluation process in which we will analyze differences of view between 
the Appeals Council and OQA concerning cases referred under the new 
procedures. We believe this post-adjudicative process, in conjunction 
with the new OQA referral process, will increase our ability to 
identify needed policy clarifications.

Regulatory Provisions

    As revised in these final rules, Secs. 404.969 and 416.1469 set 
forth the Appeals Council's own-motion authority and state that we 
refer cases to the Appeals Council for it to consider reviewing under 
that authority. Sections 404.969 and 416.1469 also describe the 
identification and referral procedures we will follow and the actions 
the Appeals Council will take in cases it considers for possible review 
on its own motion. These sections apply to all cases that our 
regulations make subject to own-motion review by the Council.
    Sections 404.969(b) and 416.1469(b) specify that we will identify a 
case for referral to the Appeals Council for possible review under its 
own-motion authority before we effectuate a decision in the case. These 
sections provide that we will identify cases for referral through 
random and selective sampling techniques, that we may examine cases 
identified by sampling to assess whether the criteria for review by the 
Appeals Council are met, and that we will also identify cases for 
referral through the evaluation of cases we conduct in order to 
effectuate decisions.
    Under Secs. 404.969(b)(1) and 416.1469(b)(1), we may conduct random 
and selective sampling of cases involving all types of actions that 
occur at the hearing level of the administrative review process (i.e., 
wholly or partially favorable decisions, unfavorable decisions, or 
dismissals) and any type of title II or title XVI benefits (i.e., 
different types of benefits based on disability and benefits not based 
on disability). Our decision to adopt these rules rests on our 
conclusion that we should increase the number of favorable disability 
decisions the Appeals Council considers for possible review on its own 
motion to better balance the Council's review of favorable and 
unfavorable decisions. However, the Council's existing authority to 
review cases on its own motion covers all types of title II and title 
XVI cases adjudicated at the hearing level, and these final rules will 
allow use of the identification and referral procedures being set forth 
with respect to all such cases.
    Sections 404.969(b)(1) and 416.1469(b)(1) specify that we will use 
selective sampling to identify cases that exhibit problematic issues or 
fact patterns that may increase the likelihood of error. Under these 
provisions, the factors considered in random and selective sampling 
shall not include the identity of the decisionmaker or the identity of 
the office issuing the decision.
    Sections 404.969(b)(1) and 416.1469(b)(1) also authorize, but do 
not require, that we examine cases that have been identified through 
random or selective sampling. Cases may be identified for referral by 
random or selective sampling. The purpose of the examination of cases 
that we may conduct is to refine the identification of cases in which 
one or more of the criteria for own-motion review by the Appeals 
Council may be met.
    Sections 404.969(b)(2) and 416.1469(b)(2) provide that effectuating 
components will identify cases for referral under criteria they 
presently use to identify cases that they believe exhibit clear error 
and other circumstances preventing effectuation of a decision. Any type 
of decision requiring effectuation may be identified for referral under 
these provisions.
    Under Secs. 404.969(c) and 416.1469(c), we will make referrals that 
occur as the result of a case examination or the effectuation process 
in writing. The written referral will state the referring component's 
reasons for believing that the Appeals Council should review the case 
on its own motion. Sections 404.969(c) and 416.1469(c) also provide 
that referrals resulting from selective sampling without a case 
examination may be accompanied by a written statement identifying the 
issue(s) or fact pattern that caused the referral, and that referrals 
resulting from random sampling without a case examination will only 
identify the case as a random sample case. A statement of the issue(s) 
or fact pattern identified in selective sampling may be computer 
generated.
    Sections 404.969(d) and 416.1469(d) specify that the Appeals 
Council's notice of review will include a copy of any written referral 
provided to the Appeals Council. These provisions also include language 
clearly stating our long-standing policy that issuance of the notice of 
review establishes when a decision to conduct a review occurs (see

[[Page 36563]]

Hearings and Appeals Litigation Law Manual (HALLEX), section I-3-301).
    Sections 404.969(d) and 416.1469(d) also state our policy that when 
the Appeals Council is unable to decide whether to review a case on its 
own motion within the 60-day period in which it may do so, it may 
consider whether the decision should be reopened under the provisions 
of Secs. 404.987 and/or 416.1487, which authorize the Council to reopen 
a decision that has become administratively final on its own initiative 
or at the request of a party to the decision, if a condition for 
reopening stated in Secs. 404.988 or 416.1488 is present. Inclusion of 
this statement in the regulations clarifies our long-standing policy 
that the Appeals Council may also reopen final decisions in accordance 
with Secs. 404.987, 404.988, 416.1487, and 416.1488 after the 60 days 
for initiating review under Secs. 404.969 and 416.1469 have expired 
(see Social Security Acquiescence Ruling (AR) 87-2(11)).
    Sections 404.969(d) and 416.1469(d) also state, finally, that if 
the Appeals Council decides to review a decision on its own motion or 
to reopen a decision as provided in these rules, the notice of review 
or the notice of reopening issued by the Appeals Council will include, 
where appropriate, information concerning the interim benefit 
provisions of section 223(h) or section 1631(a)(8) of the Act, as 
appropriate. This provision reflects existing practices we follow under 
these statutory provisions.

Public Comments

    These regulatory provisions were published in the Federal Register 
as a notice of proposed rulemaking (NPRM) on September 25, 1997 (62 FR 
50266). We received statements in response to the NPRM from 15 
individuals and organizations. The individuals responding included ALJs 
employed by SSA and attorneys who represent individuals claiming rights 
under the Social Security and supplemental security income (SSI) 
programs. The organizations responding included a number of legal aid 
groups and four professional associations: The Association of 
Administrative Law Judges, Inc., the National Association of Disability 
Examiners, the National Council of Disability Determination Directors, 
and the National Organization of Social Security Claimants' 
Representatives.
    Some commenters endorsed the proposed rules, with or without 
recommending changes in the rules; others opposed the rules, with or 
without recommending changes in the event of their adoption. Other 
commenters accepted the general appropriateness of rules like those 
proposed while also recommending changes in the final rules or 
requesting assurances about how the rules would be applied. Generally, 
the commenters who opposed the rules raised issues about the bases for 
the proposed rules and contended that they were intended to intimidate 
ALJs and would be unfair to claimants in general and to individuals 
whose cases were included in the new procedures. Comments favoring 
adoption of the rules generally emphasized the appropriateness of 
better balancing the review of favorable and unfavorable decisions 
issued at the ALJ-hearing step of the administrative review process.
    The NPRM referred to the component that would perform the case 
examinations included in the proposed new quality assurance procedures 
as the ``Office of Program and Integrity Reviews.'' (See 62 FR 50266, 
50268.) Since publication of the NPRM, this component's name has been 
changed to the ``Office of Quality Assurance and Performance 
Assessment.'' We have used the new name and its acronym, ``OQA,'' in 
the above discussion of these final rules and in the following 
discussion of the public comments and our responses.
    Because some of the comments were detailed, we have condensed, 
summarized or paraphrased them. We have, however, tried to summarize 
the commenters' views accurately and to respond to all of the 
significant issues raised by the commenters that are within the scope 
of the proposed rules. For the reasons explained below in our responses 
to specific comments, we have not adopted the recommendations against 
promulgating these final rules or some of the specific recommendations 
we received for changing the rules as proposed. However, in response to 
the comments, as discussed below, we are clarifying the intent of the 
rules in several respects and making five clarifying changes in the 
regulatory language. For reasons discussed following the discussion of 
the comments and our responses, we are also making one editorial change 
in the regulatory language that is not in response to a specific 
comment.
    Comment: One commenter thought that the proposed rules would blur 
the roles of the Appeals Council and OQA and shift to the Appeals 
Council trend-spotting and policymaking functions that should be 
performed by OQA.
    Response: The Appeals Council has traditionally used its 
adjudicative experience as a basis for providing comments and 
recommendations in SSA's policymaking processes. An important purpose 
of the new procedures is to make better use of the Council's 
adjudicative experience for policymaking purposes. If the case 
disposition the Appeals Council makes in response to a referral from 
OQA indicates that the case may pose a significant policy or program 
issue, a post-adjudicative evaluation will be performed. OHA will 
participate in such evaluations to assure that the Council's 
adjudicative experience is reflected in the assessment of the policy 
and program issues the cases present. These procedures represent a new 
way to make use of the Appeals Council's experience in our policymaking 
processes; the procedures do not, in our judgment, blur the Council's 
role as an adjudicative body.
    Comment: One commenter stated that we should specify, as we have 
already done with respect to our selective sampling procedures, that 
the identity of the decisionmaker or the office issuing a decision will 
also not be a factor in our random sampling and ``protest'' procedures.
    Response: Because the random sampling procedures we are adopting 
may be applied to variously defined categories of cases (e.g., 
unfavorable decisions issued between given dates), we believe it would 
be appropriate to specify, in accordance with our intent, that the 
identity of the decisionmaker or of the office issuing the decision 
will not be a factor in either our random or our selective sampling 
procedures. Accordingly, we have modified the provisions of 
Secs. 404.969(b)(1) and 416.1469(b)(1), and the description of these 
regulatory provisions set forth above, to make this point clear.
    We believe that the identity of the decisionmaker or office would 
clearly not be a factor that might be encompassed within the criteria 
stated in Secs. 404.969(b)(2) and 416.1469(b)(2) for identifying cases 
for referral as a result of the effectuation process. Therefore, we are 
not modifying the language of those provisions in response to this 
comment.
    Comment: Several commenters were concerned about the proposed 
provisions of Secs. 404.969(d) and 416.1469(d) that stated: ``If it is 
unable to decide within the applicable 60-day period whether to review 
a decision or dismissal, the Appeals Council may consider the case to 
determine if the decision or dismissal should be reopened pursuant to 
Sec. 404.987 [416.1487].'' These commenters expressed views to the 
effect that these

[[Page 36564]]

provisions would effectively do away with the 60-day limit on own-
motion review and make the grounds for own-motion review applicable for 
reopening purposes.
    Response: As we discussed in the preamble to the NPRM and in the 
above description of the regulatory provisions, the language in 
question in this comment is intended to allow the Appeals Council to 
``consider whether the decision should be reopened under the provisions 
of Secs. 404.987 and/or 416.1487, which authorize the Council to reopen 
a final decision on its own initiative or at the request of a party to 
a decision, if a condition for reopening stated in Secs. 404.988 and/or 
416.1488 is present.'' The regulatory provisions as proposed reflected 
that intent by stating that the Council will consider if it should 
reopen the decision or dismissal action ``pursuant to Sec. 404.987 
[416.1487]'', because those sections make reopening contingent on 
satisfaction of the requirements set forth in Secs. 404.988 and 
416.1488. However, to make it unmistakably clear that we intend this 
provision to allow a decision to be reopened only if a condition for 
reopening described in Secs. 404.988 or 416.1488 is present and the 
time limits established in those sections are also satisfied, we have 
modified the regulatory language to provide that the Appeals Council 
may determine if a decision or dismissal received under Secs. 404.969 
or 416.1469 ``should be reopened pursuant to Secs. 404.987 and 404.988 
[416.1487 and 416.1488].''
    Comment: Several commenters thought that the intent of the proposed 
provisions concerning reopening in Secs. 404.969(d) and 416.1469(d) 
should be clarified relative to the decision of the United States Court 
of Appeals for the Eleventh Circuit in Butterworth v. Bowen, 796 F.2d 
1379 (11th Cir. 1986).
    Response: In Butterworth, the Court of Appeals for the Eleventh 
Circuit held that the Appeals Council could reopen an ALJ's decision 
only if the case is ``properly before'' the Council, and that the 
circumstances in which the Council would have an ALJ's decision 
properly before it did not include those in which it had considered, 
but not timely taken, own-motion review. The court concluded that: 
``[W]e have not held that the Secretary is precluded from initiating 
the reopening and revising of cases. We have only given section 404.969 
its necessary force and recognized that it limits somewhat the 
reopening jurisdiction of the Appeals Council.''
    We acquiesced in the holding in Butterworth by publishing AR 87-
2(11). We issued this ruling because we determined that the court's 
holding conflicted with our longstanding policies that the Appeals 
Council may reopen any ALJ decision if the requirements in 
Secs. 404.987 and 404.988 or 416.1487 and 416.1488 are met, and that 
such reopening actions are subject only to the time limits set forth in 
those regulations and not to time limits in any other regulations, 
including the 60-day time limit in Secs. 404.969 and 416.1469.
    In accordance with the provisions of 20 CFR Sec. 404.985(e)(4) and 
416.1485(e)(4), we are rescinding AR 87-2(11). Sections 404.985(e)(4) 
and 416.1485(e)(4) provide that an AR may be rescinded as obsolete if 
we subsequently clarify, modify or revoke the regulation or ruling that 
was the subject of the circuit court holding for which the AR was 
issued. As explained in a notice of the rescission of AR 87-2 that we 
are publishing concurrently with these final rules (see the notices 
section of this Federal Register), we are rescinding this AR as 
obsolete based on the language that we are including in 
Secs. 404.969(d) and 416.1469(d) in these final rules to clearly state 
our policy that the Appeals Council has authority to reopen, in 
accordance with the requirements of Secs. 404.987, 404.988, 416.1487, 
and 416.1488, ALJ decisions that come before it for possible own-motion 
review. This language establishes that a case that has come before the 
Appeals Council under the provisions of Secs. 404.969 or 416.1469, and 
for which the 60-day period for taking own-motion review has lapsed, is 
properly before the Council for the purpose of considering reopening 
under the existing regulations on reopening. This language also 
establishes that it is our intent that the Appeals Council's authority 
to reopen an ALJ's decision in accordance with the provisions of those 
regulations, which establish conditions for reopening that differ from 
the conditions for own-motion review, should not be subject to the 60-
day time limit in Secs. 404.969 and 416.1469.
    Comment: Several commenters believed that fundamental fairness 
requires the Agency to accord ALJ decisions such finality as to 
preclude the Appeals Council from reopening ALJ decisions referred to 
it for possible own-motion review.
    Response: Our regulations on reopening and revising determinations 
and decisions allow us to reopen final, favorable and unfavorable 
determinations and decisions under stated conditions, on our initiative 
and at the request of claimants. These regulations enable us to provide 
relief to individuals whose claims should not have been denied and to 
protect the integrity of the Social Security and SSI programs by 
reopening favorable determinations and decisions that should not have 
been made. If an individual is dissatisfied with a revised 
determination or decision made after reopening, the individual may 
request further administrative or judicial review, as appropriate. We 
believe that our rules on reopening are fundamentally fair and that 
they do not deny appropriate finality to ALJ decisions or to any of our 
final dispositions, all of which are subject to the same rules of 
reopening.
    Comment: Two commenters thought that, since these rules contemplate 
that the number of favorable decisions reviewed by the Appeals Council 
will increase, the rules should provide for informing claimants of 
their rights to interim benefits under sections 223(h) and 1631(a)(8) 
of the Act.
    Response: Sections 223(h) and 1631(a)(8) of the Act provide that, 
where an ALJ has determined after a hearing that an individual is 
entitled to Social Security benefits based on disability or is eligible 
for SSI benefits based on disability or blindness, and the Commissioner 
of Social Security has not issued a final decision within 110 days 
after the date of the ALJ's decision, such benefits shall be currently 
paid for the months during the period specified in section 223(h) or 
section 1631(a)(8), as appropriate. Any benefits paid under these 
sections will not be considered overpayments unless the benefits were 
fraudulently obtained. We have implemented sections 223(h) and 
1631(a)(8) through guidance provided in our Program Operations Manual 
System (POMS), sections DI 42010.205 ff. and SI 02007.001 ff., and in 
our HALLEX, section I-3-655. We pay interim benefits under our 
procedures if an ALJ has issued a favorable decision in a claim for 
initial or continuing benefits based on disability or blindness, the 
Appeals Council has either initiated review of the decision under its 
own-motion authority or reopened the decision pursuant to our reopening 
regulations, 110 days have elapsed since the date of the ALJ's 
decision, and the Commissioner has not issued a final decision.
    The notice the Appeals Council issues upon initiating own-motion 
review or reopening of a decision covered by section 223(h) or section 
1631(a)(8) advises claimants of the interim benefit provisions of those 
sections. However, we believe it would be appropriate, in response to 
this comment, to include language in Secs. 404.969(d) and 416.1469(d) 
to inform claimants that they will be advised of the interim

[[Page 36565]]

benefit provisions of section 223(h) or section 1631(a)(8), if 
appropriate, where the Appeals Council reviews a favorable ALJ decision 
on its own motion or reopens such a decision as provided in the 
regulations. Accordingly, we have added such language and modified the 
description of these regulatory provisions set forth above to reflect 
this addition.
    Comment: One commenter stated that the proposed rule changes were 
being made ``pursuant to'' section 304(g) of Pub. Law 96-265, the 
provision of the Social Security Disability Amendments of 1980 commonly 
referred to as the Bellmon Amendment. Two other commenters also thought 
that the proposed rules relied on this statutory provision for their 
basis or authority.
    Response: As discussed above and in the preamble to the NPRM, we 
are amending our regulations to include these new quality assurance 
procedures to further the goals of the Disability Redesign Plan. More 
specifically, we are including these procedures to better balance the 
Appeals Council's review of favorable and unfavorable decisions and to 
increase our ability to identify policy issues that should be clarified 
through publication of regulations or rulings.
    The statutory authority under which we are adopting these rules 
includes sections 205(a), 702(a)(5), and 1631(d) of the Act, which give 
the Commissioner of Social Security broad authority to establish rules 
and procedures governing the process for determining claims for 
benefits under titles II and XVI. We are also proceeding under sections 
205(b) and 1631(c)(1) of the Act, which, in addition to directing the 
Commissioner to hold hearings and render decisions on the basis of 
evidence adduced at the hearing, also provide that: ``[t]he 
Commissioner * * * is further authorized, on the Commissioner's own 
motion, to hold such hearings and to conduct such investigations and 
other proceedings as the Commissioner may deem necessary or proper for 
the administration of this title.''
    These rules are not being promulgated to carry out the provisions 
of section 304(g) of Pub. Law 96-265 although this provision remains in 
effect and supports the general proposition that SSA should conduct 
some form of own-motion review of disability decisions issued by ALJs. 
Because authority beyond that provided in the Act is not required for 
the purposes of these rules, we have decided not to revise the 
authority citations for Subpart J, Part 404, and Subpart N, Part 416, 
to include references to section 304.
    Comment: One commenter thought that the new quality assurance 
procedures would misinterpret section 304(g) of Pub. Law 96-265 to 
justify focusing exclusively on allowance decisions.
    Response: In promulgating these rules, we are interpreting section 
304(g) of Pub. Law 96-265 to be consistent with the Commissioner of 
Social Security exercising his discretion to design and implement a 
program, like that established in these rules, for having the Appeals 
Council consider for review, on its own motion, disability decisions 
issued by ALJs. We believe this interpretation comports with the intent 
of section 304(g).
    As discussed above and in the NPRM, these rules are intended to 
achieve a better balance in the Appeals Council's review of favorable 
and unfavorable decisions. While more than half of the unfavorable 
decisions issued by ALJs in recent years have been made subject to 
possible review by the Appeals Council as a result of claimant appeals, 
the number of favorable decisions the Council considers for possible 
review has represented less than three percent of the favorable 
decisions of ALJs (see above). We believe that we can achieve a better 
balance in the review of favorable and unfavorable decisions by 
including in the workload of favorable decisions the Council considers 
a relatively small number of cases that have been referred to the 
Council because they involve problematic issues or fact patterns that 
may increase the likelihood of error. As previously discussed, we 
believe that post-adjudicative evaluation of such cases can increase 
our ability to identify significant policy and program issues and to 
make appropriate improvements in our policies. Under these new rules, 
the Council's review functions should be better balanced in the sense 
that the amount of meaningful information they generate concerning 
issues and fact patterns that cause erroneous allowances will more 
nearly balance the extensive information that is already available, as 
a result of the request for review process and judicial review, about 
issues and fact patterns that cause erroneous disallowances.
    The preambles to the NPRM and these final rules specify that the 
Appeals Council's existing authority to review cases on its own motion 
covers all types of title II and title XVI cases. These rules will 
allow use of the identification and referral procedures they set forth 
with respect to all such cases. Sections 404.969(b)(1) and 
416.1469(b)(1), as proposed and as adopted, state: ``We may use random 
and selective sampling to identify cases involving any type of action 
(i.e., wholly or partially favorable decisions, unfavorable decisions, 
or dismissals) and any type of benefits (i.e., benefits based on 
disability and benefits not based on disability).'' Thus, while we 
currently see a need to better balance the review of favorable 
disability decisions by ALJs with the review of unfavorable disability 
decisions by ALJs, we are not preoccupied with the review of the former 
type of cases and are, instead, mindful of the need to ensure that we 
will have the flexibility in the future to use these new random and 
selective sampling techniques to bring to the Council's attention any 
mix of cases that it needs to consider to contribute in the most 
meaningful manner possible to our ability to assure the quality of our 
decisionmaking.
    Comment: One commenter referred to the proposed procedures as the 
``Bellmon Review Program II'' and contended that the ``selective 
sampling'' procedures proposed in the NPRM were actually ``targeting'' 
procedures.
    Response: The issues and controversies that arose concerning the 
Bellmon Review Program of the 1980s are beyond the scope of the NPRM by 
which we proposed these new quality assurance procedures. However, for 
the reasons discussed below, we believe that it is important to 
distinguish these new procedures from that earlier program.
    In Association of Administrative Law Judges v. Heckler, 594 F.Supp. 
1132, 1143 (D.D.C. 1984), the court concluded that an incautiousness 
which it perceived in the Agency's use of terms such as ``targeting'' 
could have ``tended to corrupt'' the ability of the ALJs to decide 
cases impartially. It is our intent, in promulgating these new 
procedures, to use terminology that properly reflects the appropriate 
purpose of these rules and to avoid using terms, such as ``targeting,'' 
that could incorrectly cause the procedures to seem intimidating. Given 
the controversy that came to be associated with the Bellmon Review 
Program, the new program we are establishing could also be made 
incorrectly to seem intimidating by referring to it as the ``Bellmon 
Review Program II.''
    Comment: One commenter contended that the distinction between 
``targeting'' ALJs and ``targeting'' profile cases is immaterial 
because selective sampling is necessarily ``chilling'' if it is 
associated with allowance rates or ``targeting'' of any sort, 
especially in the ``close'' cases that ALJs are called on to decide.
    Response: We believe that there are multiple, meaningful 
differences

[[Page 36566]]

between case-selection procedures that identify case samples based on 
case profiles, while also excluding the identity of the ALJ or the 
hearing office as factors that may be considered in the selection of 
cases, and case-selection procedures that use the identity of the ALJ 
or the hearing office in the selection of cases. We also believe that 
the case-selection procedures we are establishing will have no chilling 
effect on the ability of ALJs to decide cases impartially, free from 
Agency influence.
    In the Bellmon Review Program of the 1980s, favorable decisions of 
individual ALJs were initially included in the program based on the 
rate at which the ALJ allowed cases. The rate at which the Appeals 
Council reviewed an ALJ's decisions on its own motion was thereafter 
used to determine both the percentage of the ALJ's decisions included 
in the ongoing program and the time during which the ALJ's decisions 
would continue to be subject to possible review under the program. By 
contrast, under the program we are now establishing, no case will be 
included in the program based on the ALJ's allowance rate, or any other 
characteristic of the ALJ or of his or her record in deciding cases, 
because this program excludes the identity of the ALJ as a selection 
factor. These final rules will not cause the favorable decisions of any 
ALJ to be included in our random or selective sampling procedures, 
either at the start of the program or through its operation, at a 
higher rate than are the favorable decisions of any other ALJ, except 
as chance in random selection or in the distribution of cases 
presenting problematic issues or fact patterns causes minor variations.
    Under the new program, we will not advise adjudicators of the 
particular case profiles that we are using at any given time to 
identify cases for possible inclusion in the selective sampling portion 
of the new procedures. Our selective sampling of cases will also 
typically involve one or more random elements as a result of the 
techniques used in gathering and controlling the size of samples. For 
example, from all the cases that exhibit a profile, we might actually 
select only those in which the final digit of the Social Security 
number is odd and/or the decision is issued between certain dates. 
Thus, even if an ALJ becomes aware of the use of a particular profile, 
the ALJ will not necessarily know that a decision fitting that profile 
will be included in the sample we gather concerning it. The ALJ will 
also not know whether a case that is included in a selective sample 
will be referred by OQA to the Appeals Council for possible own-motion 
review. By contrast, under the Bellmon Review Program of the early 
1980s, an ALJ could know that 100%, 75%, 50%, or 25% of his or her 
favorable decisions would be subject to consideration for possible own-
motion review by the Appeals Council. To appreciate the contrast 
between the new procedures we are establishing and past practices, it 
should also be noted that, prior to 1975, the Appeals Council, through 
its staff, routinely considered all ALJ favorable decisions for 
possible review on the Council's own motion.
    Under the current process, the unfavorable decisions of ALJs are 
substantially more likely than their favorable decisions to be reviewed 
(by the Appeals Council or a Federal court). Our decision to better 
balance the Appeals Council's review of favorable and unfavorable 
decisions by establishing these new procedures will lessen this 
existing imbalance in a non-threatening way and, we believe, promote 
independence and impartiality in decisionmaking.
    Comment: One commenter thought the proposed procedures would be 
``chilling'' based on the view that no need exists to affect actual 
cases and that the Agency could improve decisionmaking sufficiently 
through education, training and improved policymaking.
    Response: We believe it is necessary to have the Appeals Council 
review and act on cases referred to it under these procedures, where a 
condition warranting review is present. The Appeals Council's issuance 
of decisions reversing an adjudicator's decision and orders of remand 
serves to correct error in individual cases. The Council's actions also 
instruct individual adjudicators in the correct application of Agency 
policy. We believe we cannot commit resources to increasing the Appeals 
Council's consideration of favorable decisions without also making the 
fullest possible use of its review functions to improve decisionmaking. 
While we also intend to use knowledge and information gained through 
the new procedures to improve policymaking (and to train adjudicators 
in the resulting policy improvements), that intent does not obviate the 
need to use the Appeals Council's review functions in all appropriate 
ways.
    We do not believe the independence of ALJs to issue favorable 
decisions will be ``chilled'' by subjecting such decisions to possible 
change as a consequence of these identification and referral 
procedures. The Commissioner's responsibility to administer the Social 
Security and SSI programs and to make final decisions determining 
eligibility for benefits imposes on the Commissioner a duty to ensure 
consistency and impartiality in the decisionmaking process. The 
decisionmaking authority of ALJs is an authority to decide cases 
impartially in a manner consistent with Agency policy; that authority 
is not such that it should be ``chilled'' by any appropriate action the 
Commissioner may take to ensure that his final decisions, favorable as 
well as unfavorable, comply with the law, regulations and rulings. 
Establishing quality assurance procedures that make it possible for the 
Appeals Council to better balance its review of favorable and 
unfavorable decisions is an appropriate action by the Commissioner of 
Social Security.
    Comment: Citing a memorandum that the Appeals Council recently 
issued in connection with a specific case, one commenter contended that 
SSA intends to pressure ALJs through feedback mechanisms reminiscent of 
a feedback system associated with the Bellmon Review Program.
    Response: In addition to providing feedback to ALJs through 
decisions and remand orders of the Appeals Council, the Bellmon Review 
Program of the early 1980s included, as a controversial element that 
was never fully implemented, a companion, multi-stage system that was 
intended to provide individualized, extra-adjudicative feedback and 
counseling on the results of own-motion review under the program and, 
thereby, to promote long term improvement in the decisionmaking of the 
affected ALJs. We have not proposed, either in the Disability Redesign 
Plan or in the NPRM for these rules, to establish any ongoing, 
systematic process for providing ALJs extra-adjudicative, 
individualized feedback in which we would try to use the results of 
own-motion review by the Appeals Council to change an ALJ's 
decisionmaking practices. These final rules intend that the quality of 
ALJ decisionmaking should be improved principally through the 
instructional effect of the remand orders and reversal decisions that 
the Appeals Council will issue to individual ALJs under its own-motion 
authority, and through the publication of clarifying regulations and 
rulings that we will develop based on these new quality assurance 
procedures and make available to all adjudicators, with additional 
training as appropriate.
    These rules establish no program for providing individualized 
feedback and contemplate no feedback activities that could properly be 
viewed as threatening by individual ALJs or the Corps of ALJs as a 
whole. The memorandum cited in this comment was issued in a trial-run

[[Page 36567]]

we conducted of these new procedures in which the Appeals Council did 
not actually exercise its own-motion authority. The memorandum was 
issued to provide some feedback in a situation in which the Appeals 
Council had not exercised its own-motion authority and, thus, could not 
provide feedback in the form of an order of remand or a reversal 
decision.
    Comment: One commenter contended that the elimination of the 
request for Appeals Council review step in the administrative review 
process contemplated in the Disability Redesign Plan will greatly 
reduce the number of appealed denial decisions, and that SSA's past 
practices provide a convincing basis for concluding that the vast 
majority of decisions subject to selective sampling will be allowance 
decisions.
    Response: The Disability Redesign Plan contemplates that favorable 
and unfavorable decisions would be subject to review on the Appeals 
Council's own motion in a redesigned disability claims process in which 
the request for review step is eliminated. We have recently begun 
testing elimination of that step of the existing process in a limited 
number of disability claims in which an ALJ issues a decision that is 
less than fully favorable (62 FR 49598 (1997)). If we eliminated the 
request for review step as it is presently constituted in the 
disability claims process (as we would do only after we have completed 
the above test, evaluated the test results, consulted with key 
stakeholders, and promulgated the necessary regulations through public 
notice and comment procedures), we would seek to refer to the Appeals 
Council, for possible review on its own motion, that mix of favorable 
and unfavorable decisions that would best ensure, through their 
consideration by the Council, the overall quality of ALJ 
decisionmaking. Considering our responsibility to assure the accuracy 
of unfavorable as well as favorable decisions, and the adverse effects 
on our ability to manage the Social Security and SSI programs 
effectively that could be expected to arise if we did not assure the 
quality of the unfavorable decisions subject to judicial review, we 
would have important reasons to refer to the Appeals Council a 
sufficient number of unfavorable decisions to permit us to provide 
meaningful Agency feedback to the ALJs and to identify policy issues 
that should be clarified through publication of regulations or rulings.
    Comment: Pointing out that the time the Appeals Council currently 
requires to process its large request-for-review workload is high, 
several commenters expressed the view that it would be unconscionable 
to devote limited resources to the Council's own-motion workloads and 
thereby subject claimants who have requested review to additional 
delays.
    Response: We recognized in the Disability Redesign Plan (59 FR 
47889-47890) that placing additional resources into the existing 
disability claim process is not a viable alternative for increasing our 
ability to provide high-quality, responsible service to the public, and 
that we need to undertake longer-term strategies to address the service 
delivery problems affecting the disability process. We are adopting 
these final rules to take a step in accomplishing the goals of the 
disability redesign, the effectuation of which will inevitably entail 
acceptance of some temporary reductions in some aspects of service 
delivery in exchange for achieving long-term improvements. However, it 
should also be noted that the rules we are adopting give us substantial 
flexibility to determine the number of cases the Appeals Council 
considers for possible own-motion review as a result of random and 
selective sampling, and that we expect the rules to result in no change 
in the number of cases that are ``protested'' to the Council by 
effectuating components. Therefore, we anticipate that we will be able 
to manage the implementation of the new procedures in a way which 
minimizes any temporary reductions in service.
    Comment: One commenter stated that use of statistical case profiles 
in selecting cases to be brought before the Appeals Council is not 
within the Appeals Council's ``own-motion jurisdiction,'' that the 
``mindset'' associated with use of such a procedure is one that easily 
allows for disregarding the established administrative review process.
    Response: Under section 702(a)(7) of the Act, which accords the 
Commissioner of Social Security full authority to assign duties and 
delegate authority to officers and employees of SSA, the Commissioner 
has delegated to the Appeals Council exclusive authority to decide to 
conduct and to perform own-motion review of hearing-level decisions. 
However, there are other functions that must be accomplished for SSA to 
carry out head-of-agency, own-motion review of hearing-level decisions 
issued nationwide. Such other functions include identifying and 
referring to the Appeals Council cases that the Council may consider 
for possible review under its own-motion authority. SSA has heretofore 
assigned identification and referral functions to various components, 
including those that perform random sampling and those that ``protest'' 
ALJ decisions. Under these final rules, the responsibility for 
identifying and referring cases to the Council is expanded to include 
OQA and the components that will perform operational-support functions 
in our new selective sampling and examination procedures.
    The use of case profiles in selective sampling is a function within 
the Agency's authority that may properly be assigned to the Appeals 
Council, OHA, and other SSA components. Promulgating regulations to 
include such procedures in the set of procedures SSA uses to exercise 
the Commissioner's own-motion authority does not denote a mindset prone 
to disregard the administrative appeals process. Instead, that action 
constitutes an appropriate initiative to improve the disability claims 
process through rulemaking.
    Comment: One commenter stated that the proposed quality review 
program would likely ignore the substantial evidence rule as related to 
the findings and conclusions of ALJs, and that the proposed program 
will allow the Appeals Council to ``second guess'' the ALJ's findings 
and conclusions concerning the credibility of evidence based on 
``factors outside the record.'' Another commenter stated that we must 
make it clear that the standard for review will be the substantial 
evidence standard.
    Response: The Appeals Council retains authority under 
Secs. 404.969, 404.970, 416.1469 and 416.1470 to review a case, on 
request for review or on its own motion, for any reason. It is the 
practice of the Appeals Council, generally, to deny a request for 
review, or to decline to review a case on its own motion, if the case 
does not meet at least one of the criteria for review stated in 
Secs. 404.970 and 416.1470, which set forth the reasons for which the 
Appeals Council ``will'' review a case. (See HALLEX sections I-3-301-I-
3-307.)
    Under the provisions of Secs. 404.970(a) and 416.1470(a), the 
Appeals Council will review a case if the ALJ's decision is not 
supported by substantial evidence or if another of the criteria for 
review stated in those sections is met. Under the provisions of 
Secs. 404.970(b) and 416.1470(b), if new and material evidence is 
submitted to the Appeals Council that relates to the period on or 
before the date of the hearing-level decision, the Appeals Council will 
consider the ``entire record'', including the new and material evidence 
submitted, and will decide to review the case if ``it finds that the 
[ALJ's] action, findings, or conclusion is contrary to the

[[Page 36568]]

weight of the evidence currently of record.''
    The additional evidence that the Appeals Council considers under 
Secs. 404.970(b) and 416.1470(b) (if the evidence is new and material 
and relevant to the period at issue) is typically submitted by 
claimants or their representatives. In addition, under our existing 
``protest'' procedures, effectuating components sometimes attach to 
their memoranda to the Appeals Council potential evidentiary items 
encountered in the activities these components conduct to effectuate 
decisions. Thus, for example, if an updated earnings report that has 
been secured to determine benefit amounts appears to show that the 
claimant engaged in substantial gainful activity after the date on 
which the hearing-level decision found that disability began, the 
effectuating component may submit the earnings report to the Appeals 
Council as an attachment to a protest memorandum. Under these final 
rules, effectuating components will attach such items to the written 
referrals they make under Secs. 404.969(c) and 416.1469(c).
    Evidence that the Appeals Council considers under Secs. 404.970(b) 
and 416.1470(b) to determine whether to review a case is not part of 
the record of the decision that has been made at the hearing level, of 
course, but it is part of the administrative record in any further 
proceedings that may occur in the case. If the Council reviews the case 
and a new decision is issued, any evidentiary items received under 
these provisions are made part of the record for decision that is 
established, either by an ALJ following remand or, if the Appeals 
Council is able to issue a fully favorable decision, by the Council.
    When a case-examination is conducted by OQA under the new quality 
assurance procedures established by these final rules, the OQA analyst 
who conducts the examination may consult with a medical or 
psychological consultant to gain insight into whether the decision at 
the hearing level was supported by the record upon which it was based. 
Insights gained through such consultations may be reflected in the 
written referrals that OQA will prepare, as provided in 
Secs. 404.969(c) and 416.1469(c), to state its reasons for believing 
that the Appeals Council should review the decision on its own motion. 
However, the written referrals made by OQA will attach no statement or 
writing by a consultant that could activate the additional-evidence 
provisions of Sec. 404.970(b) or Sec. 416.1470(b). Those provisions 
will also not be activated by the written referral itself, which will 
document the procedural history of the case and express OQA's reasons 
for believing the case should be reviewed. The written referral will 
not constitute an evidentiary item to be weighed in decisionmaking. In 
deciding whether to review cases referred by OQA, the Appeals Council 
will apply the criteria set forth in Secs. 404.970(a) and 416.1470(a). 
If the Council reviews the case, OQA's written referral will be 
included in the procedural portion of the overall administrative record 
of the case, but will not be part of the evidentiary record upon which 
any subsequent decision is based.
    Comment: Several commenters thought that the selective sampling of 
allowance decisions would be unfair to individuals whose cases meet an 
applicable case profile. The reasons given for this view included that 
such individuals would effectively face a higher standard of proof than 
other individuals (as a result of the chilling effect on ALJ readiness 
to reach a favorable decision and the existence of a pre-judgment in 
favor of denial), and that the decisions of these individuals would be 
placed at special risk by being subjected to procedures that other 
favorable decisions do not face.
    Response: We have already discussed our reasons for believing that 
these new procedures will not intimidate ALJs or chill their decisional 
independence. We further note here that use of selective sampling to 
identify cases based on the presence of problematic issues or fact 
patterns involves, not a pre-judgment that these cases should be 
denied, but a judgment that the chance of error in the cases so 
identified is elevated as compared to the chance of error in cases that 
do not involve such issues and patterns, and that consideration of the 
cases presenting such issues and patterns provides an increased 
opportunity to identify error and policy issues that should be 
clarified through publication of regulations or rulings.
    It is true, of course, that the cases of claimants whose allowance 
decisions are selected for consideration for own-motion review will be 
subjected to an examination not given to other cases and/or possible 
review by the Appeals Council. However, for the reasons discussed 
below, we believe that these rules minimize the number of cases we need 
to expose to possible review on the Council's own motion.
    Cases selected for possible own-motion review will be equally 
affected whether chosen by random or selective sampling procedures. The 
effects of own-motion procedures (which can include providing some 
individuals who receive unfavorable decisions additional administrative 
consideration through no action of their own) could not be wholly 
eliminated except by subjecting all cases to own-motion consideration 
or by eliminating own-motion functions altogether. The first of these 
options is not currently feasible, and the second would be inconsistent 
with the responsibility of the Commissioner of Social Security to 
ensure consistency and uniformity in the allocation of benefits through 
his final decisions.
    Our decision to promulgate these rules rests on the judgment that 
use of selective sampling procedures, together with our existing random 
sampling and ``protest'' procedures, represents the best way to 
minimize the number of cases we need to subject to possible own-motion 
review while also maximizing the use we can make of our own-motion 
capacities to identify erroneous decisions and to monitor operation of 
the claims process effectively. Use of case examinations by OQA in 
conjunction with selective sampling refines the identification of cases 
that should be subjected to consideration by the Appeals Council for 
own-motion review and reduces the number of cases that we need to 
subject to such consideration.
    In our judgment, the procedures we are adopting in these final 
rules to improve the disability claims process are in accord with the 
following views the United States Supreme Court expressed in Califano 
v. Boles, 443 U.S. 282, 285 (1979), concerning how fairness can best be 
assured to individuals seeking Social Security benefits:

    * * * the Court has been sensitive to the special difficulties 
presented by the mass administration of the social security system. 
After the legislative task of classification is completed, the 
administrative goal is accuracy and promptness in the actual 
allocation of benefits pursuant to those classifications. The 
magnitude of that task is not amenable to the full trappings of the 
adversary process lest again benefit levels be threatened by the 
costs of administration. Mathews v. Eldridge, 424 U.S. 319, 343-349, 
96 S.Ct. 893, 906-910, 47 L.Ed.2d. 18 (1976); Richardson v. Perales, 
402 U.S. 389, 406, 91 S.Ct. 1420, 1430, 28 L.Ed.2d. 842 (1971). 
Fairness can best be assured by Congress and the Social Security 
Administration through sound managerial techniques and quality 
control designed to achieve an acceptable rate of error.
    Comment: Several commenters expressed concern that SSA has not 
specified the case profiles that will be used in selective sampling. 
One commenter contended that this

[[Page 36569]]

omission violated the principle that regulations should not be vague 
and indefinite. Another commenter contended that SSA would expose ALJs 
to claims of bias by not identifying through notice and comment 
procedures the types of cases to be ``targeted.''
    Response: We are not specifying the problematic issues or fact 
patterns that will be used in defining the case profiles to be employed 
in selective sampling because these issues and fact patterns will 
change over time and we will need flexibility to address such changes. 
In addition, as we explained above in discussing the distinctions 
between ``targeting'' and the selective sampling procedures we are 
establishing, we do not plan to advise adjudicators of the particular 
case profiles we are using at any given time. Considering that it will 
also always be clear that neither the identity of the decisionmaker nor 
the identity of the office issuing the decision has been a factor in 
the selection of a case, we believe that these rules will not in any 
way expose decisionmakers to charges of bias.
    Comment: One commenter believed that the proposed rules would 
create ``internal procedures'' and a new layer of administrative 
``review'' without providing claimants the right to participate in 
those procedures/review and to understand the criteria that the 
examining component and the Appeals Council apply, until a 
determination to review the favorable decision has been made.
    Response: These final rules add no new layer of administrative 
review. The only ``review'' of an ALJ's decision that can occur under 
our regulations, as currently established and as amended by these 
rules, is the ``review'' that occurs if and when, following its 
preliminary consideration of a case, the Appeals Council decides to 
review a case and announces its decision to review in a notice of 
review. For the purposes of the Social Security and SSI claims process, 
``own motion'' review means a review that is initiated absent any 
motion/appeal or input by the claimant. The activities SSA conducts to 
decide whether to exercise its own-motion authority (i.e., 
identification and referral procedures and the preliminary 
consideration of cases that the Appeals Council conducts, with the 
assistance of its staff) are internal functions; they constitute the 
way this large Agency decides whether to exercise its authority to 
initiate review of cases unilaterally. Where the claimant has not 
requested review, the proceedings in which the claimant has a due 
process right of participation are limited to those that occur if the 
Appeals Council decides, for the Agency, to review the case.
    Under these final rules, the Appeals Council retains exclusive 
authority to decide to review a hearing-level case. The criteria the 
Council will apply in deciding whether to review cases will remain, as 
discussed above, those it currently applies under Secs. 404.969, 
404.970, 416.1469, and 416.1470. In addition, the examination of cases 
that OQA conducts under these final rules will be for the purpose of 
assessing whether the criteria for review by the Appeals Council may be 
met (or, in OQA'a view, are met). To make this point clear, we have 
modified the provisions of Secs. 404.969(b)(1) and 416.1469(b)(1) that 
state the purpose of the case examinations. We have also modified the 
explanation of the case examination set forth above.
    Comment: Two commenters likened the procedures proposed in the NPRM 
to the procedures of the SSA Representation Project, a test project of 
the 1980s in which an SSA representative could participate in certain 
ALJ hearings and refer cases to the Appeals Council for possible own-
motion review. It was contended that OQA's function in the new 
procedures would be like that of the SSA representative and would 
involve the kind of advocacy that was criticized in Salling v. Bowen, 
641 F. Supp. 1046 (W.D.Va. 1986).
    Response: Under these final rules, OQA will examine cases that have 
been initially identified through random and selective sampling 
procedures to determine if a case should be the subject of a referral 
and, if that issue is resolved in the affirmative, to state its reasons 
for believing that the decision is not supported and should be 
considered by the Appeals Council for possible review under its own-
motion authority. OQA, as the SSA component responsible for SSA's 
quality assurance functions, will examine cases with no prior 
involvement in those cases that might, even arguably, affect its 
ability to impartially assess whether a referral is warranted under the 
applicable law, regulations and rulings. The Appeals Council, which 
will decide if own-motion review is appropriate, has, like ALJs and all 
other SSA decisionmakers, no adjudicative duty other than to assure 
that cases are decided impartially in accordance with Agency policy as 
established through law, regulations, and rulings.
    Based on the above considerations, we see no significant similarity 
between the SSA Representation Project and the quality assurance 
procedures we are establishing in these final rules. We also believe 
that these procedures support our ability to continue to provide 
informal, nonadversarial adjudication of cases in a high-volume 
process.
    Comment: One commenter indicated that, if SSA did not abandon the 
proposed rules, it should amend the rules to provide that SSA will not 
use the data gathered to keep records on ALJs or individual hearing 
offices regarding allowance or own-motion rates or any similar 
information, to prohibit the instituting of any form of continuing 
education for ``targeted'' ALJs, and to provide for publishing any data 
gathered in the program to all ALJs without mention of the name of any 
ALJ or hearing office.
    Response: As we discussed above, there will be no ``targeting'' of 
ALJs under these rules, which preclude consideration of the identity of 
a decisionmaker or of a decisionmaking office and of any data 
concerning matters such as a decisionmaker's allowance or own-motion 
rate, in the random sampling, selective sampling, and case-effectuation 
procedures we are establishing in these final rules. We intend that 
these rules should improve decisional quality principally through the 
instructional effects of the Appeals Council's adjudicative actions and 
through the policy clarifications we will develop based on these new 
quality assurance procedures. The rules establish no program for 
providing individualized feedback, contemplate no feedback activities 
that should be threatening to individual ALJs or the Corps of ALJs as a 
whole, and do not authorize or contemplate publishing data on named 
ALJs or hearing offices.
    We are not adopting the recommendation of this commenter that we 
should modify these final rules to prescribe the uses that will be made 
of data gathered as a result of the quality assurance procedures we are 
establishing by these rules. The uses of management information is not 
a matter within the scope of these rules.
    Comment: One commenter believed that the new process would be 
subject to the same harsh criticism as the ``targeted'' reviews of the 
early 1980s absent satisfaction of the following requirements: ``Both 
the process for selecting decisions to review and the criteria used in 
the review must be scrupulously fair and free from bias. Selection of 
cases must be made randomly. Individual ALJs cannot become targets. 
Allowance and denial rates have no part in the selection process. 
Reviewers must be clear that their standard for review is one of 
substantial evidence supporting the ALJ's decision.''

[[Page 36570]]

    Response: For reasons discussed above generally in response to 
other comments, and as we further explain below specifically, we 
believe that the new quality assurance procedures we are establishing 
in these final rules exhibit each of the characteristics urged by this 
commenter. We note that while the new procedures provide for selective 
as well as random sampling, our selective sampling of cases will 
typically involve random elements and will be scrupulously fair and 
free from bias.
    Individual ALJs cannot become targets under those procedures and 
allowance and denial rates have no part in the selection process. The 
new procedures and these rules cause no change in the criteria for 
reviewing hearing level decisions and orders of dismissal, or in the 
practices the Appeal Council follows in applying the substantial 
evidence standard and other criteria in deciding whether to review a 
case.

Other Changes

    We have modified the provisions of Secs. 404.969(b)(2) and 
416.1469(b)(2), and the explanation of those provisions set forth 
above, to emphasize that a referral resulting from the effectuating 
process rests on the belief of an effectuating component that a 
decision cannot be effectuated (for a reason stated in those 
provisions) and does not represent a pre-judgement by the Agency that 
review of the decision is appropriate. The Appeals Council retains 
exclusive authority under these final rules to decide for the Agency 
whether a hearing-level decision should be reviewed.

Regulatory Procedures

Executive Order 12866

    We have consulted with the Office of Management and Budget (OMB) 
and determined that these rules do meet the criteria for a significant 
regulatory action under Executive Order 12866. They were therefore 
submitted to OMB for review. These rules do not adversely affect State, 
local or tribal governments. The rules are expected to result in 
administrative costs of less than $5 million annually and to have no 
significant impact on program costs. Therefore, we have not prepared a 
cost benefit analysis under Executive Order 12866.

Regulatory Flexibility Act

    We certify that these regulations will not have a significant 
economic impact on a substantial number of small entities because these 
rules affect only individuals. Therefore, a regulatory flexibility 
analysis as provided in the Regulatory Flexibility Act, as amended, is 
not required.

Paperwork Reduction Act

    These regulations impose no new reporting or record keeping 
requirements requiring OMB clearance.

(Catalog of Federal Domestic Assistance Program Nos. 96.001, Social 
Security-Disability Insurance; 96.002, Social Security-Retirement 
Insurance; 96.003, Social Security-Special Benefits for Persons Aged 
72 and Over; 96.004, Social Security-Survivors Insurance; 96.006, 
Supplemental Security Income)

List of Subjects

20 CFR Part 404

    Administrative practice and procedure, Death benefits, Disability 
benefits, Old-Age, Survivors and Disability Insurance, Reporting and 
recordkeeping requirements, Social Security.

20 CFR Part 416

    Administrative practice and procedure, Aged, Blind, Disability 
benefits, Public assistance programs, Supplemental Security Income 
(SSI), Reporting and recordkeeping requirements.

    Dated: May 27, 1998.
Kenneth S. Apfel,
Commissioner of Social Security.

    For the reasons set out in the preamble, subpart J of part 404 and 
subpart N of part 416 of chapter III of title 20 of the Code of Federal 
Regulations are amended as set forth below.

PART 404--FEDERAL OLD-AGE, SURVIVORS AND DISABILITY INSURANCE 
(1950-  )

    20 CFR part 404, Subpart J, is amended as follows:
    1. The authority citation for subpart J of part 404 continues to 
read as follows:

    Authority: Secs. 201(j), 205(a), (b), (d)-(h), and (j), 221, 
225, and 702(a)(5) of the Social Security Act (42 U.S.C. 401(j), 
405(a), (b), (d)-(h), and (j), 421, 425, and 902(a)(5)); 31 U.S.C. 
3720A; sec. 5, Pub. L. 97-455, 96 Stat. 2500 (42 U.S.C. 405 note); 
secs. 5, 6(c)-(e), and 15, Pub. L. 98-460, 98 Stat. 1802 (42 U.S.C. 
421 note).

    2. Section 404.969 is revised to read as follows:


Sec. 404.969  Appeals Council initiates review.

    (a) General. Anytime within 60 days after the date of a decision or 
dismissal that is subject to review under this section, the Appeals 
Council may decide on its own motion to review the action that was 
taken in your case. We may refer your case to the Appeals Council for 
it to consider reviewing under this authority.
    (b) Identification of cases. We will identify a case for referral 
to the Appeals Council for possible review under its own-motion 
authority before we effectuate a decision in the case. We will identify 
cases for referral to the Appeals Council through random and selective 
sampling techniques, which we may use in association with examination 
of the cases identified by sampling. We will also identify cases for 
referral to the Appeals Council through the evaluation of cases we 
conduct in order to effectuate decisions.
    (1) Random and selective sampling and case examinations. We may use 
random and selective sampling to identify cases involving any type of 
action (i.e., wholly or partially favorable decisions, unfavorable 
decisions, or dismissals) and any type of benefits (i.e., benefits 
based on disability and benefits not based on disability). We will use 
selective sampling to identify cases that exhibit problematic issues or 
fact patterns that increase the likelihood of error. Neither our random 
sampling procedures nor our selective sampling procedures will identify 
cases based on the identity of the decisionmaker or the identity of the 
office issuing the decision. We may examine cases that have been 
identified through random or selective sampling to refine the 
identification of cases that may meet the criteria for review by the 
Appeals Council.
    (2) Identification as a result of the effectuation process. We may 
refer a case requiring effectuation to the Appeals Council if, in the 
view of the effectuating component, the decision cannot be effectuated 
because it contains a clerical error affecting the outcome of the 
claim; the decision is clearly inconsistent with the Social Security 
Act, the regulations, or a published ruling; or the decision is unclear 
regarding a matter that affects the claim's outcome.
    (c) Referral of cases. We will make referrals that occur as the 
result of a case examination or the effectuation process in writing. 
The written referral based on the results of such a case examination or 
the effectuation process will state the referring component's reasons 
for believing that the Appeals Council should review the case on its 
own motion. Referrals that result from selective sampling without a 
case examination may be accompanied by a written statement identifying 
the issue(s) or fact pattern that caused the referral. Referrals that 
result from

[[Page 36571]]

random sampling without a case examination will only identify the case 
as a random sample case.
    (d) Appeals Council's action. If the Appeals Council decides to 
review a decision or dismissal on its own motion, it will mail a notice 
of review to all the parties as provided in Sec. 404.973. The Appeals 
Council will include with that notice a copy of any written referral it 
has received under paragraph (c) of this section. The Appeals Council's 
decision to review a case is established by its issuance of the notice 
of review. If it is unable to decide within the applicable 60-day 
period whether to review a decision or dismissal, the Appeals Council 
may consider the case to determine if the decision or dismissal should 
be reopened pursuant to Secs. 404.987 and 404.988. If the Appeals 
Council decides to review a decision on its own motion or to reopen a 
decision as provided in Secs. 404.987 and 404.988, the notice of review 
or the notice of reopening issued by the Appeals Council will advise, 
where appropriate, that interim benefits will be payable if a final 
decision has not been issued within 110 days after the date of the 
decision that is reviewed or reopened, and that any interim benefits 
paid will not be considered overpayments unless the benefits are 
fraudulently obtained.

PART 416--SUPPLEMENTAL SECURITY INCOME FOR THE AGED, BLIND, AND 
DISABLED

    20 CFR Part 416, Subpart N, is amended as follows:
    1. The authority citation for subpart N continues to read as 
follows:

    Authority: Sec. 702(a)(5), 1631, and 1633 of the Social Security 
Act (42 U.S.C. 902(a)(5), 1383, and 1383b).

    2. Section 416.1469 is revised to read as follows:


Sec. 416.1469  Appeals Council initiates review.

    (a) General. Anytime within 60 days after the date of a decision or 
dismissal that is subject to review under this section, the Appeals 
Council may decide on its own motion to review the action that was 
taken in your case. We may refer your case to the Appeals Council for 
it to consider reviewing under this authority.
    (b) Identification of cases. We will identify a case for referral 
to the Appeals Council for possible review under its own-motion 
authority before we effectuate a decision in the case. We will identify 
cases for referral to the Appeals Council through random and selective 
sampling techniques, which we may use in association with examination 
of the cases identified by sampling. We will also identify cases for 
referral to the Appeals Council through the evaluation of cases we 
conduct in order to effectuate decisions.
    (1) Random and selective sampling and case examinations. We may use 
random and selective sampling to identify cases involving any type of 
action (i.e., wholly or partially favorable decisions, unfavorable 
decisions, or dismissals) and any type of benefits (i.e., benefits 
based on disability and benefits not based on disability). We will use 
selective sampling to identify cases that exhibit problematic issues or 
fact patterns that increase the likelihood of error. Neither our random 
sampling procedures nor our selective sampling procedures will identify 
cases based on the identity of the decisionmaker or the identity of the 
office issuing the decision. We may examine cases that have been 
identified through random or selective sampling to refine the 
identification of cases that may meet the criteria for review by the 
Appeals Council.
    (2) Identification as a result of the effectuation process. We may 
refer a case requiring effectuation to the Appeals Council if, in the 
view of the effectuating component, the decision cannot be effectuated 
because it contains a clerical error affecting the outcome of the 
claim; the decision is clearly inconsistent with the Social Security 
Act, the regulations, or a published ruling; or the decision is unclear 
regarding a matter that affects the claim's outcome.
    (c) Referral of cases. We will make referrals that occur as the 
result of a case examination or the effectuation process in writing. 
The written referral based on the results of such a case examination or 
the effectuation process will state the referring component's reasons 
for believing that the Appeals Council should review the case on its 
own motion. Referrals that result from selective sampling without a 
case examination may be accompanied by a written statement identifying 
the issue(s) or fact pattern that caused the referral. Referrals that 
result from random sampling without a case examination will only 
identify the case as a random sample case.
    (d) Appeals Council's action. If the Appeals Council decides to 
review a decision or dismissal on its own motion, it will mail a notice 
of review to all the parties as provided in Sec. 416.1473. The Appeals 
Council will include with that notice a copy of any written referral it 
has received under paragraph (c) of this section. The Appeals Council's 
decision to review a case is established by its issuance of the notice 
of review. If it is unable to decide within the applicable 60-day 
period whether to review a decision or dismissal, the Appeals Council 
may consider the case to determine if the decision or dismissal should 
be reopened pursuant to Secs. 416.1487 and 416.1488. If the Appeals 
Council decides to review a decision on its own motion or to reopen a 
decision as provided in Secs. 416.1487 and 416.1488, the notice of 
review or the notice of reopening issued by the Appeals Council will 
advise, where appropriate, that interim benefits will be payable if a 
final decision has not been issued within 110 days after the date of 
the decision that is reviewed or reopened, and that any interim 
benefits paid will not be considered overpayments unless the benefits 
are fraudulently obtained.

[FR Doc. 98-17633 Filed 7-6-98; 8:45 am]
BILLING CODE 4190-29-P